Like most of the nation, my family will gather this week with our extended clan to share a meal and a laugh or two.  Thanksgiving is also a time to take a moment to consider those who are not so fortunate.

If you turn those good thoughts into good deeds, your charity might be eligible as a tax deduction.  Uncle Sam put together a useful guide on Year-End Donations.

Cash and Stock

If you give money to your favorite charities, you can usually deduct the amount donated on Schedule A (Itemized Deductions) of your 1040.  There are some limits.  See IRS Pub 526, Charitable Donations, if you have questions.

If you have stocks (equities) that have appreciated in value, donating them instead of cash can mean a bigger tax deduction for you.  See my post earlier this year on this subject.

Used Clothing and Household Goods

The Salvation Army and Goodwill Industries have offices nationwide.  Personally, Goodwill gets my donations, since the Salvation Army discriminates against LGBT folk (hence the lack of a link to it in the preceding sentence).  In many states, the Vietnam Veterans of America will come to your house to pick up your donations, including small pieces of furniture.

You can deduct the fair market value of donated used clothing and household goods.  The IRS Publication 561, Determining the Value of Donated Property, is a starting point, but Goodwill’s guide to valuation is more direct.

Volunteering

Volunteering your time is the greatest gift you can give.  Whether you choose to work with children, seniors, or community organizing, nothing can replace the gift of your experience, energy, and enthusiasm.  Unfortunately, you cannot take a tax deduction for the value of your time.  You can deduct mileage for driving to the place where you volunteer.

However you choose to celebrate this week, best wishes for a happy holiday season.

Related posts: Charitable deductions warm you twice

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You can claim the cost of your child’s summer camp as a dependent care expense if:

• the camp is essentially providing child care so that you and your spouse can work (or look for work),
• it is a day camp (sleepover camps are considered a luxury), and
• the child is under 13.

You can claim expenses of up to $3,000 for one child or $6,000 for two or more children.

The expense claimed is limited by the lesser of the earned income of the two spouses.  For example, if one spouse’s annual income is $5,000, you cannot claim the full $6,000 expense for two children.

The claim is made on line 48 of the 1040.  You must include IRS Form 2441: Child and Dependent Care Expenses.

The tax credit received is 20% of the dependent care expense if your Adjusted Gross Income is greater than $43,000.  The percentage credit rises if the AGI is lower.

Alternatively, some employers have a dependent care benefit plan which enables you to use pre-tax dollars to pay for summer care.  If your tax bracket is higher than 20%, then the pre-tax route is the better bang for the buck.  In addition, the dependent care benefit plan allows up to $5,000/year per family, whether it is for one or more children.  Also, if you have two (or more) children and your childcare expenses exceed the $5,000 allowed under your employer’s benefit plan, you can claim the remaining $1,000 under the dependent care credit (for a total of the $6,000 allowed expense).

IRS Publication 503: Child and Dependent Care Expenses

Photo credit: stock.xchng

Hey, that’s some good!

Let me know if this was a new deduction for you.

The fine print: Add your annual FastLane expenses to the amount you spend on weekly/monthly passes.  Subtract $150 if filing single, head of household, or married-filing-separately.  The difference, up to $750, is deductible.  Enter the amount on Line 15 of your Massachusetts Form 1 (Schedule Y: Other Deductions).  If you are filing as a married couple, you calculate the commuting expenses for you and your spouse separately, and the amount each of you spends above $150 is deductible, with a deduction limit of $750 for each of you.  Of course if you are reimbursed by your employer, then the amount is not deductible.

The finer print: Massachusetts law specifically calls for FastLane expenses.  I happen to use E-ZPass, because I moved here from New Jersey several years ago.  Turns out that E-ZPass expenses are not deductible.

Should I switch from E-ZPass to FastLane? Last year, I only spent about $50 on tolls (so I don’t cover the $150 minimum).  E-ZPass charges $1/month service fee.  Starting 1 Jun 2009, FastLane will be charging $0.50/transponder per month.  I have two cars, so that is equal to the $1 E-ZPass fee.  E-ZPass and FastLane are both members of the InterAgency Group that handles toll roads in 13 states, so they cover the same territory.  FastLane does have some discounts not available to E-ZPass customers, despite a recent lawsuit, and you can use it to pay for parking in some MBTA-related lots.  So maybe I should switch.

• In the model year 90%
• In the second year 60%
• In the third year 40%
• In the fourth year 25%
• In the fifth and succeeding years 10%

Since the tax is based on the value of the car (and not the weight or other criteria), the Feds allow you to claim it it as personal property tax deduction on your Schedule A.

One question to consider is whether it’s worth it to buy down your mortgage rate.  Points are prepaid interest.  A quick look at a local bank’s rates show that I can get a 15-year-mortgage for a rate of 5.13%, or pay one point and reduce the rate to 4.75%.  One point is 1% of the loan value.  How do I figure out which is better?  Let’s run some numbers.  I’ve put it in a spreadsheet, so you can follow along if you wish.

Let’s assume the loan is for $200,000.  One point is then $2,000.  At a rate of 5.13%, the monthly payment would be $1595.  (In Excel use the @pmt function.  @pmt(rate, periods, loan amount, final loan amount) or @pmt(5.13%/12, 12*15, -200000, 0). )  At a rate of 4.75%, the monthly payment would be $1556, for a savings of $39/month — the difference between the two payments.

Would you pay someone $2000 to give you $39 each month?  This proposal is the same as an annuity.  Wait!  Before eyes glaze over, it’s not that bad.

In your first year, you would save $39*12= $468,  or 23%.  Not a bad rate of return on your $2000 investment.  The actual rate of return over the life of the loan can be found with Excel’s @rate function.  Here:  annual rate = 12*@rate(12*15, 39, -2000) = 22.6%.   However, you’d have to hold the loan for the full term to realize this benefit.  If you refinanced after 5 years, the rate of return on your points falls to 6.4%, still, not too bad.  Roughly, you need to plan to have the loan at least $2000/($39/months)=51 months = 4 years, 3 months, for it to make sense to pay the points up front.

Points are deductible on on Schedule A of your income tax,  prorated over the life of the loan.  See IRS Publication 936 for details.

IRS Pub 1040 Instructions, p. 6 and IRS Pub Schedule A Instructions p. 7.